Westfield a riskier company under restructure plan: S&P

Standard & Poor's says it is likely to lower Westfield's credit ratings if a restructure is approved.

ABC News: Giulio Saggin

One of the world's major ratings agencies says Westfield's planned restructure will make it a riskier investment.

Standard & Poor's says it is likely to lower the shopping centre developer's credit ratings by one notch if a restructuring proposal is voted up by shareholders on May 29.

Westfield plans to merge the group's Australian and New Zealand property assets with Westfield Retail Trust to form Scentre Group.

The remaining Westfield Group portfolio of shopping centres in the US, UK and Italy will be called Westfield Corporation.

Westfield Retail Trust and Westfield Group have commissioned independent expert reports which concluded that the deal is in the best interests of shareholders in the absence of a superior proposal, but S&P is not convinced.

Craig Parker, a credit analyst with the ratings agency, says Westfield Corporation's business risk profile will still be "strong", but its overall rating would be lowered from A- to BBB+.

"The demerger will reduce its scale and diversity due to a more narrowly focused asset base, and it will have a greater exposure to lumpy and sizable asset redevelopment," he cautioned.

"Indeed, Westfield Corp will no longer receive high-quality and less-volatile income from the Australian and New Zealand assets after the demerger."

Mr Parker is also concerned that Westfield's weaker competitive position in the US, UK and Italy will leave it exposed without the substantial financial backing of its market-dominant Australian and New Zealand assets.

However, S&P warns that the planned transaction not only makes Westfield Group riskier, but also increases the vulnerability of the newly formed Scentre Group of Australian and New Zealand assets because it will increase its debt load.

"This transaction will entrench Scentre Group as the pre-eminent real estate property trust in Australia and New Zealand, where it will be the only local real estate issuer to achieve Standard & Poor's 'excellent' business risk profile," said S&P credit analyst Graeme Ferguson.

"Nevertheless, we expect Scentre Group will operate at a financial risk profile that is materially more aggressive, at the 'intermediate' category, than our current assessment, due to a substantially higher target gearing range."

He says that means Scentre Group's credit rating will likely fall to A from A+.

Both companies would still be rated well within the 'investment grade' range that stretches from BBB- upwards.